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A Return Machine

Magnum Taxgain, the oldest and second largest ELSS fund, has earned enormous wealth for its investors in the last two years and left its nearest rival way behind

Till mid-2003, the fund had a depressing past--it had gained a paltry 5.09 per cent a year till June 2003. However since then, its performance chart has seen an unprecedented rise--the fund has earned an annualised return of 104 per cent between mid-2003 and October 2005, and is miles ahead of its average peer's 56.72 per cent rise during the same period. Investors have acknowledged this feat and poured money into the fund, which has seen its asset multiply more than six-fold since mid-2003.

A greater emphasis on some well picked mid- and small-cap stocks is behind the fund's sensational turnaround. Some of its engineering and chemical picks have performed exceptionally well during the period. Stocks like Thermax, Praj Industries, Havell's India, Crompton Greaves, United Phosphorous etc have proved to be multi-baggers. Sabharwal has also booked profits effectively to enhance the fund's returns. The fund continues to deliver surprises in 2005 as well. As on December 12 this year, Magnum Taxgain had gained 94.03 per cent since the start of the year, much more than an average peer's 46.53 per cent return.

The fund, though, has had its share of pains in the past. During 2000 and 2001, the fund went through the most painful period of its life. The undoing came when the fund failed to check the tech polarisation of its portfolio with the massive run up in these counters. The unflinching faith for tech counters - which averaged at 50 per cent in 2000, saw the returns sheared away in the tech meltdown. The fund shed a whopping 47 per cent to make it to the bottom of the heap. The fund continued to lose much more than the category through 2001. However, what added to the misery was that the saga continued in 2002 as well. In a year when many other equity funds took the path of recovery after the tech debacle, Magnum Taxgain continued to lag behind. However, the tide turned in its favour after that.

The fund is managed aggressively, as the fund manager does not hesitate to take huge stock-specific or sector-specific bets. Therefore, high returns come here with high volatility as well. But since all ELSS funds come with a default three-year lock-in, this should not be a problem.